Buybacks Can't Save DeFi

Author: OXStill; Source: Bitpush

2025 wasn't an easy year for DeFi projects, but they did learn a trick from Wall Street: use buybacks to express confidence.

According to a report by crypto market maker Keyrock, the top 12 DeFi protocols spent approximately $800 million on buybacks and dividends in 2025, a 400% increase from the beginning of 2024.

Analyst Amir Hajian wrote in the report: "Just as listed companies use buybacks to convey a long-term commitment, DeFi teams also hope to prove that they are profitable, have cash flow, and have a future."

But in a market with scarce liquidity and low risk appetite, are these actions of "rewarding token holders" a return to value or just futile money burning?

Who is involved in this buyback wave?

This wave of buybacks, starting with Aave and MakerDAO at the beginning of the year, has continued to include PancakeSwap, Synthetix, Hyperliquid, and Ether.fi—covering almost all the major tracks in DeFi. Aave (AAVE) is one of the leading projects that launched a systemic buyback program relatively early. Since April 2025, Aave DAO has been using protocol revenue to buy back approximately $1 million of AAVE weekly, and in October discussed making the mechanism "normalized," with an annualized budget of up to $50 million. On the day the proposal was approved, AAVE briefly rose 13%, but after a six-month pilot program, its book profit was negative.

MakerDAO (MKR) launched the Smart Burn Engine in 2023, using DAI surplus to periodically buy back and burn MKR. In its first week of operation, MKR rebounded by 28%, hailed as an example of "cash flow returning to holders."

However, a year later, the market presents a paradox of "confidence recovery lagging behind valuation." Despite strong fundamentals (MakerDAO continuously increases DAI reserve returns through real-world asset RWA), the MKR price (fluctuating around $1,800 USD as of the end of October 2025) is still only one-third of its all-time high during the 2021 bull market ($6,292 USD). The latest proposal from the Ethereum liquidity staking protocol Ether.fi (ETHFI) is undoubtedly the most attention-grabbing move recently. The DAO authorizes up to $50 million to buy back ETHFI in batches below $3 USD, using a Snapshot voting process, with the goal of "stabilizing the price and restoring confidence." However, the market is also wary: if the funds mainly come from treasury reserves rather than sustainable income, this "price-stabilizing buyback" will inevitably lack sustainability. PancakeSwap (CAKE) has chosen the most programmatic path. Its "Buyback & Burn" mechanism is integrated into the token model, disclosing net inflation data monthly. In April 2025, CAKE's net supply shrank by 0.61%, entering a state of sustained deflation. However, the price still hovers around $2, far below the 2021 high of $44—the improved supply brings stability, not a premium.

Synthetix (SNX) and GMX are also using protocol fees to buy back and burn tokens.
Synthetix added a buyback module in its 2024 version update, while GMX automatically puts a portion of its transaction fees into a buyback pool. Both saw a 30% to 40% rebound during the peak of buybacks in 2024, but both suspended buybacks when stablecoin pegs came under pressure and fees declined, shifting funds to risk reserves. The real "exceptional winner," however, is the perpetual contract platform Hyperliquid (HYPE). It treats buybacks as part of its business narrative: a portion of the protocol's revenue automatically enters a secondary market buy pool.
Dune data shows that Hyperliquid invested a total of $645 million in the past year, accounting for 46% of the industry total, and its HYPE token has risen by 500% since its launch in November 2024.
However, HYPE's success is not only due to buying pressure, but also to revenue and user growth—daily trading volume tripled in a year.

Why do buybacks often "fail"?

From the perspective of traditional financial logic, buybacks are highly sought after mainly for three reasons:

First, it promises to increase value share. Protocols use real money to buy back and burn tokens, and the reduction in circulating supply means that each token will enjoy a higher future return.

Second, it conveys governance confidence. Willingness to initiate buybacks indicates that the protocol has profitability, financial leeway, and governance efficiency.

This is seen as a significant sign that DeFi is shifting from "burning money on subsidies" to "operating dividends." Furthermore, it creates scarcity expectations. When combined with mechanisms like lock-up and slashing, buybacks can create a deflationary effect on the supply side, optimizing the token economic model. However, theoretical perfection does not equate to practical feasibility. Firstly, timing often backfires. Many DAOs generously invest during bull markets but reduce funds during bear markets, creating an awkward situation of "buying high and waiting low," contradicting the initial intention of value investing. Secondly, the source of funds is often a concern. Many projects use treasury reserves rather than continuous profits; once revenue declines, buybacks become an unsustainable "putting on a brave face." Finally, there is the opportunity cost. Every dollar used for buybacks means one less dollar invested in product iteration and ecosystem development. Market maker Keyrock warned in October: "Excessive buybacks may be one of the least efficient ways to allocate capital." Even if buybacks are implemented, their effects are easily diluted by continuous unlocking and new token issuance. When supply-side pressure remains, limited buybacks are like a drop in the ocean. Messari researcher Sunny Shi points out: "We haven't found that the market will continue to inflate valuations due to buybacks; prices are still determined by growth and narrative." Furthermore, the macro liquidity structure of the entire DeFi market has changed. Despite a strong rebound in total value locked (TVL) to a three-year high (approximately $160 billion), it still falls short of the all-time peak of the 2021 bull market (approximately $180 billion). More importantly, while protocol revenue and capital utilization are high, secondary market trading volume and the inflow of speculative capital will take time to fully return to the "euphoric" state of the previous cycle. In a tight liquidity environment, even the most generous buybacks cannot offset the structural problem of insufficient demand. Confidence can be bought back temporarily, but only genuine capital inflows and a growth cycle can allow DeFi to become self-sustaining again.